Nigeria will slash petrol subsidies by 90 percent this year because government revenues have been hit by the slump in oil prices.
The government had said it would gradually phase out fuel subsidies which are a significant burden on public finances, but cutting subsidies risks aggravating a fuel crisis in the country.
Major cities are experiencing a crippling gasoline shortage as oil importers feel the pinch from unpaid government subsidies, a plummeting local currency and tighter credit lines triggered by lower crude prices, oil traders and local industry sources say.
While Nigeria is Africa’s biggest oil producer, a neglected refining system means it is almost wholly reliant on imports for the 40 million litres per day of gasoline it consumes.
Parliament approved the reduction in subsidies to 100 billion naira ($505 million) for 2015, Finance Minister Ngozi Okonjo-Iweala said late on Tuesday. The cuts were accounted for in last week’s 4.49 trillion naira budget for 2015, but the breakdown was not announced until Tuesday.
Lawmakers also approved 45.5 billion naira for a separate kerosene subsidy.
In November, the government said it hoped to gradually phase out the subsidies, reducing them to 408.68 billion naira next year and 371.18 billion naira for 2017.
Okonjo-Iweala said in her budget speech that the government had already spent half of the amount it had planned to borrow and that it had not released any funds for capital expenditure this year on account of lower oil revenue.
This year’s budget took longer than usual getting through parliament, worsening a cash squeeze in government, because of the closely fought general elections in March that saw incumbent President Goodluck Jonathan defeated by opposition leader Muhammadu Buhari. He will take office later this month.
Nigeria tried to end subsidies in 2012 doubling the price of a litre of petrol overnight to 150 naira ($0.93), from about 65 naira, in efforts to cut government spending and encourage badly needed investment in local refining.
The move angered citizens who see cheap pump prices as the only benefit they derive from living in an oil-rich country and lead to 8 days of nationwide strikes. The government later reinstated part of the subsidy to end the strikes.